Alternative investments during crises

Christophe Junge, Head of Alternative Investments at Velliv
Frank Hvid Petersen, Associate Partner at Jentzen & Partners
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We know pretty well how liquid assets like equities, bonds and credit perform in an economic downturn or during market turmoil. But how about alternatives, an asset class that investors have poured trillions of dollars into in the past 10 years? How will they fare during a downturn? How recession-proof are they and how much downside return protection are they able to provide?

To gauge how recession-proof the different alternative asset classes are, we look at their performance during historical periods of recessions or market turmoils.

We have deliberately chosen the following asset classes in our analysis:

  • Commodity Trading Advisers, also known as Managed Futures, from the Hedge Fund universe as they are expected to deliver “crisis alpha”;
  • Real Estate, as this is one of the largest alternative building blocks in a typical institutional asset allocation;
  • Infrastructure, as this asset class has caught the attention of investors recently with massive inflows as a result;
  • Private Equity, divided into Buyout and Venture Capital, as this asset class is widespread in institutional portfolios and has been debated a lot whether it truly offers diversification or not;
  • Insurance-Linked Securities, as this is the most alternative within the alternative investment space and it by design should be uncorrelated to the rest of the portfolio;

We start our analysis by looking at the performance of these selected alternative investments during historical crises that we define as negative equity markets and/or noteworthy macroeconomic events.

Source: Bloomberg BarclayHedge CTA Index, NCREIF Property Index, EDHECInfra Global Private Infrastructure Equity Index, Thomsen Reuters Private Equity Buyout Index, Thomsen Reuters Venture Capital Index, Eurekahedge ILS Advisers Index USD hedged

It is worth pointing out that no two crises are identical, which is helpful to our analysis as we want to identify different drivers of performance and to see, whether some alternative investments have a general robustness or not.

While working on our analysis, the world and not least the financial markets were hit by the next crisis: COVID-19.

Source: Bloomberg BarclayHedge CTA Index, NCREIF Property Index, EDHECInfra Global Private Infrastructure Equity Index, Thomsen Reuters Private Equity Buyout Index, Thomsen Reuters Venture Capital Index, Eurekahedge ILS Advisers Index USD hedged

Some of our findings are:

  • Commodity Trading Advisers (CTA’s) are the only asset class that has delivered consistently positive performance through all major crises during the last 40 years and the COVID-19 crisis has so far been no exception, but with huge dispersion on the underlying managers.
  • Real Estate has had a mixed performance through historical crises. It can provide diversification, except when valuation going into the crisis is very high like in the early 1990’s recession or the GFC. During the Corona crisis, the NCREIF index at the top level only had modest losses, but with very large differences at the sector level. Hotels and malls are hit very hard with losses of up to 20% at the index level, while grocery-anchored retail is not affected, and some parts of logistics may even profit as more retail has moved online in light of the pandemic. This is also reflected in the sector index for industrial, which is up 3.6% in the first half of 2020.
  • Infrastructure delivered positive returns during the tech-bubble and incurred only limited losses during the GFC. However, during COVID-19, the asset class was hit harder than in an ordinary recession due to the lockdown of the economies, which hit the various transport sectors such as airports, public transport and toll roads unusually hard. The performance is depending on sector & business model, with very different cyclicality and interest rate sensitivity across regulated, contracted and merchant infrastructure;
  • Private Equity is not a good diversifier as it posts some heavy losses like equities in an economic downturn as they are influenced by the same economic factors. There has, though, been large differences in the performance of sub-asset classes like Venture Capital and Buyout and among the underlying managers. A word of caution is appropriate however, as the index used is a liquid replication benchmark that might overstate the impact over short timeframes;
  • Insurance-Linked Securities (ILS) is a young asset class that is expected to deliver very uncorrelated returns and the experience during GFC and the Corona crisis has so far confirmed that trait. CAT Bonds were slightly hit when investors pulled out of liquid investments that had not posted losses to cover margin calls but still positive performance. Even though there are some CAT Bonds covering pandemics, the largest part of the market is related to natural catastrophes like earthquakes and hurricanes and thus uncorrelated to the economy and equity markets;
  • Rules of thumb do not always hold water on closer inspection, e.g. that real estate investments are always negatively affected in the event of rising interest rates and, conversely, benefit from more lenient monetary policy and lower interest rates;
  • Country risk, especially within the Eurozone, should be given special attention at the current high levels of government debt, as future recessions could trigger significant tensions and reactions of great importance to the return on alternatives;


Our analysis shows that alternative investments have performed very differently during historical downturns and that they are far from always providing the same portfolio protection as bonds.

Based on the historical experience, it is our recommendation that investors with significant shares of their portfolio invested in alternative investments, i.e. most institutional investors in Denmark and in the Nordic countries, take a thorough look at their portfolio to identify any unexpected risks which may give a negative surprise in the next economic downturn.

Investors must be very aware of the increased country risk on their alternative investments in the Eurozone in future economic downturns.

The full analysis can be read at

About the authors

Christoph Junge is Head of Alternative Investments at Velliv; a major Danish pension fund. He is a Chartered Alternative Investment Analyst and has more than 15 years of experience from the financial industry in both Denmark and Germany. He has worked with Asset Allocation, Manager Selection as well as investment advice in, among others, Nordea, Tryg and Jyske Bank. He was awarded Rising Star of the Year by Institutional Investor Institute in 2019.

Frank Hvid Petersen has a solid theoretical and practical experience with macroeconomics and financial markets after almost 25 years of working in the financial sector. He has been Head of Strategy and Portfolio Management at Carnegie Wealth Management and a portfolio manager of global equities and fixed income. Today he has his own advisory firm. Previous positions include joint Head of Strategic Investment Advice and Chief investment Strategist at Nordea including chairman of Nordea’s Global Investment Committee. Before that he was economist, chief economist and chief equity strategist at Alfred Berg. He has won several top rankings in the annual Prospera institutional investor rankings of best macroeconomic and equity strategy analysts. He holds a M.Sc. (Econ) and has extensive teaching and presentation experience.

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Alternative investments during crises